Contingency planning is advisable for every business. It helps you identify your vulnerabilities and perhaps facilitates the development of strategies and tactics for dealing with what might otherwise be unforeseen events which can damage or even destroy your business.
In other words, it’s probably always preferable to deal with downtime or difficulties that have been planned for, rather than search for heroism in a moment of panic and stress.
However, there are probably some limits to contingency planning.
How, for example, do you deal with losing a big client?
If, say, you have Apple as a client, chances are a lot of your business revolves around meeting orders from the tech giant, as it would for any other, even one the size of Qualcomm.
Apple is so huge that when it turns away from a company, and stops ordering components or goods from them, it can completely transform the business it leaves.
When Apple stopped buying chip designs from Imagination Technologies, its share prices nosedived and it ended up selling to Canyon Bridge.
A similar situation may occur with Qualcomm, although the buyout value would be on a different scale.
Whereas Imagination Technologies has agreed a sale for $550 million, as the Financial Times is reporting, Qualcomm has not yet responded to an offer by rival Broadcom worth more than $100 billion, which might be too low, according to Reuters.
While it’s basically impossible to develop a contingency plan for replacing Apple as a client – after all, how many companies of that size are out there? – such situations nonetheless illustrate the benefit, or perhaps the need, to avoid the shock if nothing else of your business undergoing sudden and dramatic changes.
For Imagination Technologies and Qualcomm, it’s possible that one of their contingencies in the event of losing Apple as a customer was always to sell the business, but that’s just speculation, especially since Qualcomm has yet to agree a deal.
Contingency planning is for when you’re faced with the prospect of going out of business completely.
Rather than be up the proverbial creek without a paddle, the idea of contingency planning is to build or buy a few paddles just in case you and your colleagues do find yourself up that proverbial creek.
Very often, maybe always, the reasons you find yourself up that creek is nothing to do with you – you didn’t do anything to lead your company to that terrible situation where it cannot operate and may go under.
But if you don’t do contingency planning, it could that your doing nothing becomes part of the problem.
Natural disasters are usually one of the things companies include in their contingency planning – floods, fires and other physical problems that may prevent you from continuing your business.
Contingency planning is a bit like what’s often referred to as “business continuity”, or “disaster recovery”, and there is certainly some overlap between the three areas.
But contingency planning is probably broader and can include all sorts of everyday situations, many of which may be predictable, as well as the natural disasters that may or not be predictable.
For example, contingency planning could cover the absence or departure of a key member of staff. It might not be considered a disaster, nor will it prevent the business from continuing, since most employees have a way of making things work in many adverse situations.
But there are limits, of course. If the absence is too frequent or long-term, it would be advisable to create a structure within which employees are all clear about what to do.
Other situations to consider, apart from natural disasters and staffing issues, include:
- equipment failure;
- complaints about or problems with products and services;
- transport problems;
- supplier issues;
- negative publicity;
- hacking; and
- overly aggressive competitors.
There could be many more issues, or fewer, depending on your business and market.
A good place to start may be to list all the problems your business faces on a regular basis – whether it’s daily, weekly, monthly or yearly.
However, overcomplicating things, and drawing up contingency plans that are so complex that they take too much time to implement or may be difficult to understand would obviously be counterproductive.
What to do in the event of…
From the starting point of what might be considered everyday events that might adversely affect your business in small ways, there may flow an understanding of what causes bottlenecks which might seriously undermine your enterprise.
According to Lloyd’s Bank, there are three types of risk to identify as you make your contingency plans:
- a major disaster that immediately prevents normal business;
- a gradually worsening situation that makes it impossible for you to operate your business; and
- a series of smaller events happening simultaneously – or a “perfect storm” as some might call it.
When drawing up your contingency plan, Lloyd’s suggests the following:
List all the possible risks to your business, even if they are highly unlikely. For each risk, you could rate the likelihood of that risk occurring and its possible impact.
Decide who or what will be affected in each listed item, and how they will be affected.
List all the people and organisations that you could contact for help, or a solution, in each situation that occurs.
Identify which risks are insurable and check that you have adequate cover.
Minimise the impact of serious incidents as far as possible. Make sure that you have first aid and adequate emergency call-out arrangements covering your employees and essential equipment, for example.
While contingency planning mostly brings to mind how to deal with the consequences of a negative event, contingency planning can also help with coping with a positive event, such as Apple suddenly ordering 10 billion chips from your company.
Such situations – albeit on a smaller scale – do happen, and they’re not insignificant.
A recent example is Fanuc, the world’s largest industrial automation company. Its CEO, Yoshiharu Inaba, says the company is receiving too many orders for its robots and he has had to limit sales. “We can’t take any more,” he tells Nikkei.
Clearly this is not a disaster, and most companies would welcome being in such a situation, but planning for it would be even better.
Fanuc is building a new factory in its home country of Japan at a cost of $550 million to cope with a market that is growing faster than perhaps most people expected. Most of the growth for Fanuc seems to be driven by Chinese manufacturers looking to automate their businesses.
That’s enough of that
Many people have become fed up or at least disillusioned with international trade agreements and trading blocs.
But not many people predicted that those sentiments would result in the UK voting to leave the European Union, nor the US electing Donald Trump as president.
Trump has been consistently critical of the North American Free Trade Agreement, which integrates Canada, Mexico, and of course the US into one trading bloc, rather like the EU is for the many nations that are part of it.
While it would be advisable for companies that engage in cross-border trade in the US, Mexico and Canada to have contingency plans in place in the event of the US leaving Nafta – however unlikely that is, in Europe, it has become imperative for companies to prepare for the imminent implementation of whatever contingency plans they have for the UK’s exit from the EU, widely known as Brexit.
According to the Confederation of British Industry, UK companies are likely to trigger their contingency plans within the next six months even if politicians in the UK and the EU fail to reach a deal on the terms of Brexit in that time.
CBI president Paul Dreschler says Brexit negotiations have turned into a “soap opera” and companies are still uncertain as to how to plan for whatever might be the end result.
In a speech he is preparing to deliver to the CBI’s annual conference later today, Dreschler says: “We need a single, clear strategy. A plan for what we want, and what kind of relationship we seek with the EU.”
Dreschler says that “by March 2018, 60 percent of firms will have triggered their contingency plans if there are no transitional arrangements in place”.
Dreschler notes that the vast majority of companies in the UK have discussed Brexit at senior levels, with the “largest and best-resourced companies” leading the way with contingency planning – particularly in the areas of financial services, tech, logistics.
However, he says small and medium-sized enterprises are “struggling to plan, to predict, to calculate”.
Dreschler says: “Brexit is only 508 days away. But for many businesses, their alarm clocks are set even earlier than that. They’re set to the moment they will actually enact their contingency plans.
“For 10 percent of business the alarm has already rung, and they’ve begun moving staff or slowing recruitment.
“Without a transitional deal, when EU leaders gather in Brussels for the March summit, a total of 60 percent of businesses will have done the same. The clock is ticking.”
From global politics to cross-border cybercrime
Clearly it is difficult to plan for an eventuality the nature and details of which you may be uncertain of, but, unfortunately, that is what contingency planning is about, and it does need to be done.
In comments to EM360º, Larry Zulch, president and CEO at Savvius, says: “Having a solid contingency plan is like having a sprinkler system and a black box flight recorder.
“It won’t stop issues from happening, but it will help an enterprise get back on its feet quickly.”
You could include completely outlandish ideas in your contingency plan for any eventuality, but when it comes to Brexit, the UK government has strongly hinted that much of the business regulations in the UK is likely to mirror that of the EU after the exit deal is agreed.
That may reduce uncertainty for some, and maybe things won’t change much for them.
However, there are many UK businesses which are having to either relocate or establish new operations within the EU to comply with some of the already existing data laws, for example.
The EU data regulations require that any company that holds information about customers in their database must physically locate that database – that is, the servers or the data centre – within the EU.
This means that if a UK company has account information about customers located in the EU, it would need to hold that data within the EU.
Whether this means setting up an entire office, data centre services system or even data centre, within the EU depends on the existing regulations and how they will apply after the Brexit negotiations are complete and a deal is reached.
But as well as the big political issues of the day, of the Brexit and Nafta type, businesses need contingency plans for dealing with the ongoing, never-ending cyber security issues on a daily basis, especially if one of them actually gets through and brings down the network or some of the systems.
“Network issues and vulnerabilities are generally hard to predict,” says Zulch. “A solution like Savvius Vigil intelligently captures months’ worth of suspicious network traffic, so IT professionals are empowered to rapidly investigate, find and resolve problems on the network, including security breaches.
“We may never completely avoid having critical networks go down or be attacked, but preparation with the right forensic tools will always be key to a speedy recovery.”